“The whole industry has been in a tremendous amount of turmoil for the majority of this decade and we’re certainly no exception,” says American CEO Gerard Arpey. “We’ve been undergoing a process of continuous restructuring since the events of 9/11, trying to manage our company to the point where it can be consistently profitable.”
During the oil price spike in 2007, as most other airlines deferred or canceled aircraft orders, American continued with its narrow-body replacement plan and announced a huge order for Boeing’s new 787.
However, airline analyst Gary Chase notes that the “oil spike did more than just overshadow the restructuring of American and the others majors – it also drove much of the improvement. For example, if oil had stayed at $50 a barrel, it is doubtful that the airlines would have made the capacity cuts that are now helping them weather the demand downturn.
Had oil prices remained stable, “the industry would be in dramatically worse shape” in the current recession, Chase says. The airlines “wouldn’t have been ready, and with the revenue declines we are seeing, they couldn’t get through without the cuts they implemented.”
For American, and the rest of the U.S. major airlines, the good news for the future is that “the earnings picture is actually not bad,” considering the recession. It is remarkable that in the seasonally weak first quarter, most of the majors achieved near-breakeven results, excluding fuel-hedging losses, Chase says.